Grain Price and Volatility Transmission from International to Domestic Markets in Developing Countries

44 Pages Posted: 10 Nov 2015

See all articles by Francisco Ceballos

Francisco Ceballos

International Food Policy Research Institute (IFPRI)

Manuel A. Hernandez

International Food Policy Research Institute (IFPRI)

Nicholas Minot

International Food Policy Research Institute (IFPRI)

Luis Miguel Robles

World Bank Group; International Food Policy Research Institute (IFPRI)

Date Written: October 22, 2015

Abstract

Understanding the sources of domestic food price volatility in developing countries and the extent to which this volatility is transmitted from international to domestic markets is critical to help design better global, regional, and domestic policies to cope with excessive food price volatility and to protect the most vulnerable groups. This paper examines price and volatility transmission from major grain commodities to 41 domestic food products across 27 countries in Africa, Latin America, and South Asia. We follow a multivariate generalized auto-regressive conditional heteroskedasticity approach to model the dynamics of monthly price volatility in international and domestic markets. The period of analysis is 2000 through 2013. In terms of price transmission in levels, we observe only lead-lag relationships from international to domestic markets in few cases. To calculate volatility spillovers, we simulate a shock equivalent to a 1 percent increase in the conditional volatility of prices in the international market and evaluate its effect on the conditional volatility of prices in the domestic market. The transmission of price volatility is statistically significant in just one-quarter of the maize markets tested, almost half of rice markets tested, and all wheat markets tested. Volatility transmission seems to be more common when trade (imports or exports) is large relative to domestic requirements.

Keywords: prices; markets; models; commodities; volatility transmission; price transmission; grain commodity prices; domestic markets; multiple generalized autoregressive conditional heteroskedasticity (MGARCH)

JEL Classification: Q11; C32

Suggested Citation

Ceballos, Francisco and Hernandez, Manuel A. and Minot, Nicholas and Robles, Luis Miguel, Grain Price and Volatility Transmission from International to Domestic Markets in Developing Countries (October 22, 2015). IFPRI Discussion Paper 1472. Available at SSRN: https://ssrn.com/abstract=2688089

Francisco Ceballos (Contact Author)

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

Manuel A. Hernandez

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

Nicholas Minot

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States
202 862-8199 (Phone)
202 467-4439 (Fax)

Luis Miguel Robles

World Bank Group ( email )

1818 H Street NW
Washington, DC 20433
United States

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

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